October 2009 Non-Manufacturing ISM Report On Business®

NMI (Non-Manufacturing Index) at 50.6%

DO NOT CONFUSE THIS NATIONAL REPORT with the various regional purchasing reports released across the country. The national report's information reflects the entire United States, while the regional reports contain primarily regional data from their local vicinities. Also, the information in the regional reports is not used in calculating the results of the national report. The information compiled in this report is for the month of October 2009.

Business Activity Index at 55.2%
New Orders Index at 55.6%
Employment Index at 41.1%

(Tempe, Arizona) — Economic activity in the non-manufacturing sector expanded in October for the second consecutive month, say the nation's purchasing and supply executives in the latest Non-Manufacturing ISM Report On Business®.

The report was issued today by Anthony Nieves, C.P.M., CFPM, chair of the Institute for Supply Management™ Non-Manufacturing Business Survey Committee; and senior vice president — supply management for Hilton Hotels Corporation. "The NMI (Non-Manufacturing Index) registered 50.6 percent in October, 0.3 percentage point lower than the 50.9 percent registered in September, indicating growth in the non-manufacturing sector for the second consecutive month, but at a slightly slower rate. The Non-Manufacturing Business Activity Index increased 0.1 percentage point to 55.2 percent. This is the third consecutive month this index has reflected growth since September 2008. The New Orders Index increased 1.4 percentage points to 55.6 percent, and the Employment Index decreased 3.2 percentage points to 41.1 percent. The Prices Index increased 4.2 percentage points to 53 percent in October, indicating an increase in prices paid from September. According to the NMI, nine non-manufacturing industries reported growth in October. Respondents' comments remain mixed and are mostly cautious about business conditions and the overall economy."

* Non-Manufacturing ISM Report On Business® data is seasonally adjusted for Business Activity, New Orders, Prices and Employment. Manufacturing ISM Report On Business® data is seasonally adjusted for New Orders, Production, Employment, Supplier Deliveries and Inventories.

** Number of months moving in current direction

COMMODITIES REPORTED UP / DOWN IN PRICE, and IN SHORT SUPPLY

Commodities Up in Price

Cheese (3); Fuel; Masks (for TB/H1N1 use); and Stretch Film.

Commodities Down in Price

Alloys; Beef; Chicken; Gasoline (2); Pork (2); and Steel Pipe.

Commodities in Short Supply

Masks (for TB/H1N1 use); and Printer Cartridges.

Note: The number of consecutive months the commodity is listed is indicated after each item.

OCTOBER 2009 NON-MANUFACTURING INDEX SUMMARIES

NMI (Non-Manufacturing Index)

In October, the NMI registered 50.6 percent, indicating expansion in the non-manufacturing sector for the second consecutive month since August 2008. A reading above 50 percent indicates the non-manufacturing sector economy is generally expanding; below 50 percent indicates the non-manufacturing sector is generally contracting.

NMI HISTORY

Month

NMI

Month

NMI

Oct 2009

50.6

Apr 2009

43.7

Sep 2009

50.9

Mar 2009

40.8

Aug 2009

48.4

Feb 2009

41.6

Jul 2009

46.4

Jan 2009

42.9

Jun 2009

47.0

Dec 2008

40.1

May 2009

44.0

Nov 2008

37.4

Average for 12 months — 44.5
High — 50.9
Low — 37.4

Business Activity

ISM's Non-Manufacturing Business Activity Index in October registered 55.2 percent, an increase of 0.1 percentage point when compared to the 55.1 percent registered in September. Nine industries reported increased business activity, and seven industries reported decreased activity for the month of October. Two industries reported no change from September. Comments from respondents include "New customer requirements" and "New business and new capital projects."

New Orders

ISM's Non-Manufacturing New Orders Index grew in October for the second consecutive month. The index registered 55.6 percent, which is an increase of 1.4 percentage points from the 54.2 percent registered in September. Comments from respondents include: "Some customers have capital budget money to spend before year-end" and "Stocking up on critical supplies."

Employment

Employment activity in the non-manufacturing sector contracted in October for the 21st time in the last 22 months. ISM's Non-Manufacturing Employment Index for October registered 41.1 percent. This reflects a decrease of 3.2 percentage points when compared to the 44.3 percent registered in September. Three industries reported increased employment, 12 industries reported decreased employment, and three industries reported unchanged employment compared to September. Comments from respondents include: "Recent reduction in workforce" and "It appears that there is a slowdown in new job postings and [a return to] hiring freezes again."

Inventories

ISM's Non-Manufacturing Inventories Index registered 43 percent in October, indicating that inventory levels contracted in October for the 14th consecutive month. Of the total respondents in October, 29 percent indicated they do not have inventories or do not measure them. Comments from respondents include "Still burning inventory to get in line with run rate" and "Continue to lower inventory to desired level."

Prices

Prices paid by non-manufacturing organizations for purchased materials and services increased in October. ISM's Non-Manufacturing Prices Index for October registered 53 percent, 4.2 percentage points higher than the 48.8 percent reported in September. In October, the percentage of respondents reporting higher prices is 14 percent, the percentage indicating no change in prices paid is 73 percent, and 13 percent of the respondents reported lower prices.

In October, four industries reported an increase in prices paid, in the following order: Wholesale Trade; Health Care & Social Assistance; Management of Companies & Support Services; and Accommodation and Food Services. The six industries reporting prices as decreasing for the month of October — listed in order — are: Transportation & Warehousing; Other Services; Educational Services; Finance & Insurance; Construction; and Public Administration.

Prices

%Higher

%Same

%Lower

Index

Oct 2009

14

73

13

53.0

Sep 2009

9

77

14

48.8

Aug 2009

23

71

6

63.1

Jul 2009

13

59

28

41.3

Backlog of Orders

ISM's Non-Manufacturing Backlog of Orders Index grew for the second consecutive month in October. The index registered 53.5 percent, 2 percentage points higher than the 51.5 percent reported in September. Of the total respondents in October, 42 percent indicated they do not measure backlog of orders.

The five industries reporting an increase in order backlogs in October are: Construction; Real Estate, Rental & Leasing; Health Care & Social Assistance; Management of Companies & Support Services; and Retail Trade. The six industries reporting lower backlog of orders in October — listed in order — are: Arts, Entertainment & Recreation; Utilities; Agriculture, Forestry, Fishing & Hunting; Mining; Wholesale Trade; and Other Services.

Backlog of Orders

%Higher

%Same

%Lower

Index

Oct 2009

19

69

12

53.5

Sep 2009

19

65

16

51.5

Aug 2009

11

60

29

41.0

Jul 2009

10

64

26

42.0

New Export Orders

Orders and requests for services and other non-manufacturing activities to be provided outside of the United States by domestically based personnel grew in October. The New Export Orders Index for October registered 53.5 percent, which is an increase of 5 percentage points from September's index of 48.5 percent. Of the total respondents in October, 69 percent indicated they either do not perform, or do not separately measure, orders for work outside of the United States.

The five industries reporting an increase in new export orders in October are: Construction; Management of Companies & Support Services; Arts, Entertainment & Recreation; Professional, Scientific & Technical Services; and Retail Trade. The four industries reporting a decrease in export orders in October are: Information; Other Services; Transportation & Warehousing; and Wholesale Trade.

New Export Orders

%Higher

%Same

%Lower

Index

Oct 2009

18

71

11

53.5

Sep 2009

14

69

17

48.5

Aug 2009

27

54

19

54.0

Jul 2009

15

65

20

47.5

Imports

The ISM Non-Manufacturing Imports Index registered 46 percent, indicating contraction for the month of October. The index is 5.5 percentage points lower than September's index of 51.5 percent. In October, 60 percent of respondents reported that they do not use, or do not track, the use of imported materials.

The one industry reporting an increase in the use of imports in October is Retail Trade. The two industries reporting a decrease in imports for the month of October are: Information and Wholesale Trade.

Imports

%Higher

%Same

%Lower

Index

Oct 2009

2

88

10

46.0

Sep 2009

9

85

6

51.5

Aug 2009

10

78

12

49.0

Jul 2009

8

74

18

45.0

Inventory Sentiment

The ISM Non-Manufacturing Inventory Sentiment Index in October registered 63.5 percent. This is 1.5 percentage points higher than the 62 percent reported in September, indicating that respondents still believe their inventories are too high at this time. In October, 30 percent of respondents said their inventories were too high, 3 percent said their inventories were too low, and 67 percent said their inventories were about right.

The 13 industries reporting a feeling that their inventories are too high in October — listed in order — are: Other Services; Finance & Insurance; Mining; Real Estate, Rental & Leasing; Management of Companies & Support Services; Information; Accommodation & Food Services; Wholesale Trade; Health Care & Social Assistance; Arts, Entertainment & Recreation; Transportation & Warehousing; Professional, Scientific & Technical Services; and Retail Trade. The one industry reporting that their inventory is too low in October is Public Administration.

Inventory Sentiment

%TooHigh

%AboutRight

%TooLow

Index

Oct 2009

30

67

3

63.5

Sep 2009

30

64

6

62.0

Aug 2009

38

59

3

67.5

Jul 2009

28

69

3

62.5

About this Report

The data presented herein is obtained from a survey of non-manufacturing supply managers based on information they have collected within their respective organizations. ISM makes no representation, other than that stated within this release, regarding the individual company data collection procedures. Use of the data is in the public domain and should be compared to all other economic data sources when used in decision-making.

Survey responses reflect the change, if any, in the current month compared to the previous month. For each of the indicators measured (Business Activity, New Orders, Backlog of Orders, New Export Orders, Inventory Change, Inventory Sentiment, Imports, Prices, Employment and Supplier Deliveries), this report shows the percentage reporting each response, and the diffusion index. Responses represent raw data and are never changed. Data is seasonally adjusted for Business Activity, New Orders, Prices and Employment. All seasonal adjustment factors are supplied by the U.S. Department of Commerce and are subject annually to relatively minor changes when conditions warrant them. The remaining indexes have not indicated significant seasonality.

The NMI is a composite index based on the diffusion indexes for four of the indicators with equal weights: Business Activity (seasonally adjusted), New Orders (seasonally adjusted), Employment (seasonally adjusted) and Supplier Deliveries. Diffusion indexes have the properties of leading indicators and are convenient summary measures showing the prevailing direction of change and the scope of change. An index reading above 50 percent indicates that the non-manufacturing economy in that index is generally expanding; below 50 percent indicates that it is generally declining. Supplier Deliveries is an exception. A Supplier Deliveries Index above 50 percent indicates slower deliveries and below 50 percent indicates faster deliveries.

The Non-Manufacturing ISM Report On Business® is published monthly by the Institute for Supply Management™, the largest supply management research and education organization in the United States. The Institute for Supply Management™, established in 1915, is the largest supply management organization in the world as well as one of the most respected. ISM's mission is to lead the supply management profession through its standards of excellence, research, promotional activities and education.

The full text version of the Non-Manufacturing ISM Report On Business® is posted on ISM's Web site at www.ism.ws on the third business day of every month after 10:10 a.m. (ET).

The next Non-Manufacturing ISM Report On Business® featuring the November 2009 data will be released at 10:00 a.m. (ET) on Thursday, December 3, 2009.